A writer must “know and have an ever-present consciousness that this world is a world of fools and rogues… tormented with envy, consumed with vanity; selfish, false, cruel, cursed with illusions… He should free himself of all doctrines, theories, etiquettes, politics…” —Ambrose Bierce (1842-1914?). “The nobility of the writer's occupation lies in resisting oppression, thus in accepting isolation” —Albert Camus (1913-1960). “What are you gonna do” —Bertha Brown (1895-1987).

Sunday, January 18, 2015

Unfair Taxation from the Institute on Taxation and Economic Policy/ Illinois has fifth most regressive state/local taxation in nation from Capitol Fax

EXECUTIVE
SUMMARY:

The 2015 Who Pays: A Distributional Analysis of the
Tax Systems in All Fifty States (the fifth edition of the report)
assesses the fairness of state and local tax systems by measuring the state and
local taxes that will be paid in 2015 by different income groups as a share of
their incomes.1 The report examines every state and the District of Columbia.
It discusses important features of each state’s tax system and includes de­tailed
state-by-state profiles that provide essential baseline data to help lawmakers
understand the effect tax reform proposals will have on constituents at all
income levels.

The report includes these main
findings:

•
Virtually every state tax system is fundamentally unfair, taking a much greater share of
income from low- and middle-income families than from wealthy families. The
absence of a graduated personal income tax and overreliance on consumption
taxes exacerbate this problem.

•
The lower one’s income, the higher one’s overall effective state and local tax
rate. Combining
all state and local income, property, sales and excise taxes that Americans
pay, the nationwide average effective state and local tax rates by income group
are 10.9 percent for the poorest 20 percent of individuals and families, 9.4
percent for the middle 20 percent and 5.4 percent for the top 1 percent.

• In the 10 states with the most
regressive tax structures(the
Terrible 10) the bottom 20 percent pay up to seven times as much of their
income in taxes as their wealthy counterparts. Washington State is the most
regressive, followed by Florida, Texas, South Dakota, Illinois, Pennsylvania, Tennessee, Ari­zona, Kansas, and Indiana.

•
Heavy reliance on sales and excise taxes are characteristics of the most
regressive state tax systems.Six of the 10 most regressive states derive roughly half to
two-thirds of their tax revenue from sales and excise taxes, compared to a
national average of roughly one-third. Five of these states do not levy a
broad-based personal income tax (four do not have any taxes on personal income
and one state only applies its personal income tax to interest and dividends)
while four have a personal income tax rate structure that is flat or virtually
flat.

•
State personal income taxes are typically more progressive than the other taxes
that states levy(e.g.
property, consumption). Sales and excise taxes are the most regressive, with
poor families paying almost eight times more of their income in these taxes
than wealthy families, and middle income families pay­ing five times more.
Property taxes are typically regressive as well, but less so than sales and
excise taxes.

•
Personal income taxes vary in fairness due to differences in rates, deductions,
and exemptions across states. For example, the Earned Income Tax Credit improves progressivity
in 25 states and the District of Columbia, while nine states undermine
progressivity by allowing taxpayers to pay a reduced rate on capital gains
income, which primarily benefits higher-income households.

•
State consumption tax structures are highly regressivewith an average 7 percent rate on
sales and excise taxes for the poor, a 4.7 percent rate for middle-income
people, and a 0.8 percent rate for the wealthiest taxpayers. Because food is
one of the largest expenses for low-income families, taxing food is
particularly regressive; five of the ten most regressive states tax food at the
state or local level.

•
Taxes on personal and business property are a significant revenue sourcefor both states and locali­ties
and are generally regressive in their overall effect, particularly for
middle-income households. A homestead exemption (exempting a flat dollar or
percentage amount of property value from a property tax) lessens regressivity.
A property tax circuit breaker that caps the amount a property owner pays in
property taxes based on their personal income can also reduce regressivity;
none of the 10 most regres­sive states offer this tax break to low-income
families of all ages.

•
States commended as “low tax” are often high tax states for low- and
middle-income families. The 10 states with the highest taxes on the poor are Arizona,
Arkansas, Florida, Hawaii, Illinois, Indiana, Pennsylvania, Rhode Island,
Texas, and Washington. Seven of these are also among the “terrible ten” because
they are not only high tax for the poorest, but low tax for the wealthiest…

Illinois has fifth most
regressive state/local taxation in nation from Capitol Fax:

“...Illinois has the most unfair tax
system in the Midwest. As a percentage of their income, the poor pay more, and
the rich pay less in taxes here than in any of our neighboring states.” said
David Lloyd, director of the Fiscal Policy Center. “That’s what happens when
taxes are not based on ability to pay, but rather on a flat rate.”

Illinois’ tax system is
regressive, because the lower one’s income, the higher one’s tax rate. This is
in part because Illinois, unlike most other states, does not have an income tax
where taxpayers with higher incomes pay a higher rate and taxpayers with lower
incomes pay a lower rate. Without such a fair income tax, there is nothing to
offset the higher share of income that poorer taxpayers pay in sales and
property taxes.

How Illinois taxes residents
matters for a variety of reasons. In recent years, anti-tax advocates have
pushed for tax policies across the country that would reduce tax rates for the
wealthy and businesses. In Illinois, the recent income tax cut
disproportionately benefits the wealthy, while many of the proposed ideas to
partially offset the deep revenue losses would increase taxes on poor and
middle-income families.

There’s also a more practical
reason for Illinois and all states to be concerned about regressive tax
structures, according to ITEP. If the nation fails to address its growing
income inequality problem, states will have difficulty raising the revenue they
need over time. The more income that goes to the wealthy (and the lower a
state’s tax rate on the wealthy), the slower a state’s revenue grows over time.

“In recent years, multiple
studies have revealed the growing chasm between the wealthy and everyone else,”
said Matt Gardner, executive director of ITEP. “Upside down state tax systems
didn’t cause the growing income divide, but they certainly exacerbate the
problem. State policymakers shouldn’t wring their hands or ignore the problem.
They should thoroughly explore and enact tax reform policies that will make
their tax systems fairer” (Capitol Fax).

Commentary:

It is true pension reform or breaking a constitutional contract with public employees and retirees will
never address the current unfunded liability. The state's
legislators should focus upon structural reforms for revenue
and pension debt, but they have no political will to do it. Solving
the shortfall between available assets and accrued liabilities is not the
issue. It’s a symptom of a greater cause. Pension systems carry liabilities
into perpetuity because they are “perpetual government agencies” (The Teachers’
Retirement System of Illinois). There is never a need to match assets and
liabilities ever.

It is also true that most state legislators lack the political backbone to
address the causes of the budget problems but prefer scapegoating public
employees and their pension systems instead. They are abetted by the Civic
Committee of the Commercial Club of Chicago, the Civic Federation, Illinois
Policy Institute, and the Chicago Tribune, to name just a few wealthy groups
that perpetuate lies. Illinois legislators do not want to pay what is
owed to the public pension systems even though past legislators, especially
past governors, were the cause of the public pension systems’ lack of funding
throughout the decades.

What is needed to solve the budget problems in Illinois is a better revenue
base to pay the state’s self-induced debts. What is easier to do is to
evade serious problem solving of the state's budget deficits and to incriminate the
state’s public employees and retirees.

The issue at hand is the state’s regressive tax rate that no one wants to
confront. The public lacks awareness and understanding about the main causes of
the state’s budget deficits. Legislators, the Civic Committee, et al. have
capitalized on the public's ignorance of the essential causes of the state's
financial debacle by calling for budget cuts and radical pension reform as the
solutions. They are diversionary, scapegoating tactics that will bring
intentional, financial harm to public employees and retirees and allow legislators to escape
legal and ethical responsibility.

“At the core of the budget ‘crisis’ facing [Illinois] is [its] regressive state
tax structure… that is, low-and-middle-income families pay a greater share of
their income in taxes than the wealthy… [A regressive tax] disproportionately impacts
low-income people because, unlike the wealthy, [low-income people] are forced
to spend a majority of their income purchasing basic needs that are subject to
sales taxes” (United for a Fair Economy).

Instead of reforming the state's tax system, legislators (and their
wealthy subsidizers) have focused on radical pension reform and severe budget
cuts to services that the rest of us need. What do the wealthy elite and their puppet
legislators propose? They propose sweeping, radical pension reform that will destroy
the public employees’ defined-benefit pension plans, even though they
know current unfunded liabilities will not be resolved by pension
reform.

Furthermore, Illinois legislators propose budget cuts that will undermine
healthcare for children, the elderly and low-income families; budget cuts that
will prolong and increase the state’s unemployment; budget cuts in public
safety and transportation; budget cuts in education; and budget cuts that will
stifle economic recovery while increasing profits for the wealthy few among us.

According to the Center for Tax and Budget Accountability (CTBA), it is true that if the State of Illinois “does not [create] a contemporary tax
system, one that is both sound and responsive to the needs of state, basic and
necessary programs face the chopping block.”

Consider, for example, budget cuts in K through 12 and higher education:
“Disparities in [the state’s] school funding and, therefore, quality of
education, would be significantly reduced if the primary basis for school
funding was on state revenues,” and that is why Illinois is “next to last in a
ranking of states based on funds spent on education” (CTBA). As it is now,
property taxes used as the main sources of revenue for school funding guarantee
income inequalities among school districts throughout the State of Illinois.

Let’s be concerned about why the State of Illinois cannot obtain more revenue.
Besides federal sources of income, the state uses only 11 sources of
revenue: personal income tax (but note Illinois was tied for the fourth
lowest individual tax rate on households in the top income bracket), corporate
income tax (note the recent extortionate tax breaks given to some Illinois
corporations), sales tax (note that Illinois does not tax services like most
other states for another significant source of revenue), corporate franchise
tax and fees, public utility taxes, vehicle use tax, inheritance tax, insurance
taxes and fees, cigarette taxes, liquor taxes and other miscellaneous (or unsubstantial) tax sources (Commission on Government Forecasting and
Accountability).

In regards to sales taxes, “a majority of states apply their sales tax to less
than one-third of 168 potentially-taxable services… [States that do not tax
services, such as Illinois], probably could increase [its] sales tax revenue by
more than one-third if [it] taxed services purchased by households
comprehensively” (the Center on Budget and Policy Priorities).

Consider that a broader-based taxation system would provide a decrease in taxes
for low-income and many middle-income families. Taxing services alone “would
generate enough revenue to stabilize the General Revenue Fund and prevent
structural deficits that lead to cuts in basic needs and social service
programs” (CTBA). As long as our legislators play their political ping pong
game with one another, it is impossible to obtain any just resolutions to the
state’s perpetuated budget problems.

So why can’t the State of Illinois provide a fair and sound tax system, one
that is “efficient with minimal impact on the economic decisions that taxpayers
have to make” (CTBA), one that captures increased revenues in times of economic
growth, one that maintains revenue collections during poor economic times, one
that is simple and not liable to inconspicuous error, one that is transparent
and builds trust with the state’s government officials (CTBA), and one that
helps 99 percent of the state’s population?

The answer is most legislators in the State of Illinois prefer the easy way out
of a difficult and challenging situation. Illinois legislators will
not address the most important causes of the state's budget
deficits: the state's flat-rate taxation and pension debt because of their
own self-interests and the wealthy one percent that bankrolls them.

Teacher/Poet/Musician

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Persona

"I want everything to be explained to me or nothing. And reason is impotent when it hears this cry from the heart. The mind aroused by this insistence seeks and finds nothing but contradiction and nonsense" —Albert Camus (1913-1960).